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By Michael Herbst | 05-28-2009 12:07 PM

High-Yield 'Substitutes'

Loomis Sayles' Kathleen Gaffney discusses her broader definition of "high yield" and where her team had recently been finding good yields for the risk.

Securities mentioned in this video
LSBDX Loomis Sayles Bond Instl

Michael Herbst: Hello, I am Michael Herbst, mutual fund analyst with Morningstar, and we are at the Morningstar 2009 Investment Conference in Chicago. This afternoon I have the honor of being joined by Kathleen Gaffney, the vice president and co-portfolio manager at Loomis, Sayles & Company where she manages a number of funds alongside Dan Fuss. Kathleen, welcome.

Kathleen Gaffney: Thank you, Michael.

Herbst: I wanted to ask you right off the bat when we spoke a couple of weeks ago, obviously Loomis Sayles is widely known and widely respected for its credit research in the bond world, and when you and I spoke about opportunities that you were finding these days, you had mentioned the idea that you were viewing certain kinds of bonds almost as substitutes for high-yield. And, that grabs my attention given the fact that Loomis, Sayles has been comfortable in the high-yield space for quite some time. Could you explain the thinking behind that?

Gaffney: Sure, Michael. As you know, we tend to define high yield in a very broad manner. And, what's interesting about the current market environment is the dislocations in the market that we have seen: very strong flows into all the credit markets, investment grade and high-yield--but specifically the high-yield with those very strong funds flows--and investors, I would still say, being somewhat cautious and defensive.

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